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Tickers in this Article: NYX, NDAQ, CME, ICE
Only 10 full trading days into 2009, it appears that more negative territory will plague the Nasdaq and the New York Stock Exchange. But with the year still in its nascent stages, the potential exists for bulls to thwart bears at any moment, so investors should not let the daily closings of publicly-traded exchange companies sour their outlook on long-term prospects.

Investors with a pedestrian view of the market may ask: "Why would I buy shares in the Nasdaq when I see the Nasdaq composite falling everyday?" While this is a fair question, the answer will potentially benefit portfolios over the long-term, once the bears have been chased from Wall Street.

Let's take a look at the four major publicly-traded exchange companies in the U.S.

Company 52-Week High
52-Week Low
1 Year Target
CME Group (Nasdaq:CME) 2.74
5.49
9.08
IntercontinentalExchange (NYSE:ICE) 7.28
.69
.43
Nasdaq OMX Group (Nasdaq:NDAQ) .96
.96
.47
NYSE Euronext (NYSE:NYX) .20
.33
.07
Source: Thomson Financial Networks as of January 20, 2009

Beyond The Dow, The Nasdaq 100
Many investors are intrigued by the international diversity of exchanges such as NYSE Euronext and Nasdaq OMX. In addition to its crown jewel, the New York Stock Exchange, NYSE Euronext operates exchanges in Belgium, France, the Netherlands, Portugal and the U.K. Meanwhile, the Nasdaq OMX is the world's largest exchange, which participates in the operation of 70 exchanges in 50 countries, including Denmark, Finland, Iceland and Sweden.

Conventional wisdom says that during bear markets, trading volume, an integral part of profit and revenue for exchanges, declines. However, NYSE Euronext recently announced increased trading volume for December 2008 and for all of 2008. The company said average daily volume for U.S. cash products in 2008 rose 23%, to 3.5 billion shares. (Discover what on-balance volume, accumulation/distribution and open interest can tell you about the market at Gauging the Market's Psychological State.)

Nasdaq OMX announced similarly bullish figures for December 2008, reporting a 47% surge in volume across all of its exchanges compared with the same period of 2007. In addition, the volume at its U.S. exchanges increased 38% in December 2008 compared with the same period of 2007.

Despite the increased volume figures, some analysts remain cautious about the outlook of exchange shares. Any trepidation concerning NYSE and Nasdaq may be short-sighted, as both firms have diligently added new revenue streams in an effort to decrease dependence on the U.S.-exchange volume. Recently, Nasdaq announced that it had acquired an 80% stake in International Derivatives Clearing Group to gain exposure to $357 trillion in over-the-counter interest rate swaps and derivatives. The move is expected to significantly boost 2009 earnings.

NYSE Euronext is frequently mentioned as a potential buyer of rival exchanges. In early December, negotiations with Germany's Deutsche Bourse about a possible marriage were unsuccessful. However, industry consolidation could pick up as many global exchanges continue to be thrashed along with the stocks they list. Investors should note that NYSE Euronext and rival CME Group both won approval recently to become clearing centers for the now-notorious credit default swaps that led to much of the turmoil in world markets.

Exchanges Without The Stocks
CME Group and IntercontinentalExchange have made their respective marks listing products other than traditional equities. CME Group is a trading leader of products such as futures, options, foreign currency, interest rate products and commodities. IntercontinentalExchange operates in similar arenas to CME.

Despite its dramatic fall from above $650 per share to $174.50, shares of CME may appear artificially expensive, given the triple-digit price tag. "Expensive" may be a relative term here, however, as CME trades at just 11.3 times the trailing price-to-earning (trailing P/E/) for 12 months and it sports an annual dividend of $4.60, which is good for a 2.6% yield. (Learn how to quickly evaluate stocks in our complete Financial Ratios Tutorial.)

IntercontinentalExchange may be the speculative pick of the group, as it has been hurt by slower trading in over-the-counter energy markets. The fact that ICE shares opened above $80 on January 5 and closed below $58 on January 16 should give investors pause before throwing money at the stock.

Bottom Line
These days, many large cap stocks fit the bill as value plays, but the term may be a bit over used. We don't want to buy stocks simply because of low share prices. But we do want to buy potential - at a discount. NYSE and Nasdaq, both below $25 per share, with an average trailing 12-month P/E of 9.5 and an average price-to-book ratio of .77, could make for compelling portfolio additions. (Get answers to all of your questions about stock exchanges at Getting to Know the Stock Exchanges.)

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